CALIFORNIA ATTORNEY'S FEES

Fee Clause Interpretation, Section 1717: Where Cross-Complaint Did Not Involve Any Enforcement Or Promise Breaches Of A Purchase Agreement With A Fees Clause, Attorney’s Fees Lacked Any Entitlement Basis

Section 1717 Did Not Change The Analysis, Because The Scope Of The Fee Clause Can Only Relate To Contractual Claims—Meaning CCP § 1021 Must First Be Overcome.

            Otay Land Co., LLC v. U.E. Limited LLC, Case No. D077274 (4^th Dist., Div. 1 Oct. 20, 2021) (unpublished) reminds us that Civil Code section 1717 reciprocity principles do not kick in unless the fees clause, by its terms, covers the claims which are at issue in the case.  If not, CCP § 1021 is not overcome, and section 1717 makes no difference.

            In this case, plaintiff/cross-defendant prevailed on its positive claims and on the claims of defendant/cross-complainant such that plaintiff/cross-defendant was the prevailing party.  Cross-complainant had prayed for attorney’s fees in its prayer, with the trial judge denying an earlier motion to strike because a 1998 purchase agreement was at least proffered as a basis for fee entitlement.  The purchase agreement had a contractual fees clause which read this way: “If any legal action . . . is brought for the enforcement of this Agreement, or because of a breach, default, or misrepresentation in connection with this Agreement, the prevailing party shall be entitled to recover reasonable attorneys’ fees.”  After its win, plaintiff/cross-defendant moved for fees under the purchase agreement, a request denied by the trial court.

            The 4/1 DCA affirmed the fee denial.  Nothing in the two cases fell within the scope of the fee clause, with misrepresentation allegations only relating to an adverse possession claim rather than having causal connection with the 1998 purchase agreement containing the fees clause.  Plaintiff/cross-defendant argued that Civil Code section 1717 altered the result, but the appellate court reminded everyone that its reciprocity principle only applies if the fee clause could be interpreted broadly enough to encompass the claims at issue in the cases—meaning Code of Civil Procedure section 1021 (leaving the parties to strike their own bargain on fee recovery) having to be surmounted before section 1717 is considered.  Finally, plaintiff/cross-defendant claimed that the other side was estopped from denying fee entitlement based on the prayer in the cross-complaint and earlier motion to strike victory; however, this was rejected because a mere assertion of the right to fees does not operate as an estoppel where there is no true fee entitlement under the contractual clause.  (R.W.L. Enterprises v. Old Castle, Inc., 17 Cal.App.5^th 1019, 1035-1036 (2017).) 

Family Law, Fee Clause Interpretation: Wife Properly Allowed Section 217 Sanctions Against Husband For Divorce Decree Enforcement Purposes

However, Lower Court Properly Denied Her Fees On Husband’s Prior Efforts To Set Aside The Martial Settlement Agreement.

            In Marriage of Mirza, Case Nos. G057613 et seq. (4^th Dist., Div. 3 Sept. 1, 2021) (unpublished), husband and wife entered into a marital settlement agreement and divorce decree based upon the agreement.  Husband then attempted to set aside the MSA and decree, but he was ultimately unsuccessful.  The lower court denied wife’s fees relating to husband’s efforts to set aside the divorce decree, but the court did grant wife sanctions of $100,000 under Family Code section 271 to enforce the divorce decree after the set aside effort did not resonate.  The 4/3 DCA, in an opinion authored by Justice Goethals, affirmed.  A nice “line” was drawn by the family law judge, with the set aside efforts not clearly falling within the MSA and with husband’s set aside attempt to rescind being a discretionary call on how to adjust the equities.  However, wife’s subsequent efforts relating to the divorce decree were justified such that the $100,000 award was sustained on appeal.

Costs, Deadlines, Fee Clause Interpretation, Lodestar: L.A. Groundwater Case Fee And Costs Awards Remanded For A Revisit By The Fifth District

Variety Of Costs, Fee Entitlement, And Lodestar Issues Explored In This Unpublished Opinion.

            Antelope Valley Groundwater Cases, Case No. F083138 (5^th Dist. Aug. 24, 2021) (unpublished) was a Los Angeles-venued case which produced a global settlement complete with a provision for certain parties to bear attorney’s fees and costs by class counsel.  Class counsel sought to recover $3,348,160 in attorney’s and paralegal fees (4,538.8 hours at $720 per hour for attorneys; 679.5 hours at $110 or $125 per hour for paralegals).  However, the trial judge awarded class counsel $2,269,400 in attorney’s fees and $80,224 in paralegal fees, reducing the attorney requested hourly rate from $720 to $500 per hour.  He also allocated fees among different parties and rejected two parties’ attempts to pay the awards out over time under Government Code sections 984 and 970.6.  He denied a 2.5 positive enhancement request.  The trial judge also taxed over $24,000 in routine costs requested by class counsel, triggering an appeal by the class.

            The Fifth District (although based in Fresno, not Los Angeles, but assigned the case on appeal for neutrality reasons) reversed and remanded with some specific instructions.  With respect to fees, the appellate panel initially determined that the settlement agreement did authorize fee/costs entitlement and then found that the trial judge’s reasoning on the lodestar was unclear, especially as to why the requested hourly rate was discounted downward from $720 and with a “Great Recession” lower rate rationale not explaining why higher rates were not justified from when it ended (2010 going forward).  Equally salient was the fact the lodestar could not be diminished solely or primarily because a governmental entity was the party with fee/costs exposure.  But the lower court did properly allocate fee/costs recovery among some parties and correctly denied the periodic payment requests because a fees/costs judgment was not a tort judgment against a public entity under section 984 and the requesting entities did not show that the L.A. County Board of Supervisors passed a hardship ordinance for purposes of satisfying section 970.6.  Finally, on the routine cost issues, class counsel did not have to use Judicial Council costs memorandum forms (they are optional only), the trial judge impliedly allowed counsel more time to file the costs memorandum, and there were arithmetic discrepancies which the appellate court could not decipher—sending all of this back for a re-do, including a relook at the enhancement request.               

Construction, Fee Clause Interpretation, Indemnity, Insurance: Subcontractors Not Liable For Gen. Developer Defense Fees Not Relating To Their Work, And Equitable Subrogation Action Fees For Developer Not Recoverable Under Ambiguous Clause

At The End, Joint/Several Liability Theory On The First Issue Was Rejected, And Ambiguity Construed Against Developer Drafter On The Second Issue.

            This next post might interest construction and insurance practitioners, although it involves the interesting intersection of contractual and insurance equitable subrogation issues—with complexities teeming!

            In Berg v. Pulte Home Corp., Case No. C086890 (3d Dist. July 30, 2021) (partially published; fee discussions not published), developer Pulte was defended by insurer St. Paul in a residential construction lawsuit where cross-claims or intervention claims were asserted against various Pulte subcontractors.  St. Paul sued three of Pulte’s subcontractors for equitable subrogation based on the subcontractors’ failure to defend Pulte (such that the insurer had to come out of pocket) to the tune of $193,137.68 in attorney’s fees.  The lower court trifurcated the resolution:  the first phase was a bench trial on equitable subrogation entitlement (found in St. Paul’s favor); the second phase was a jury trial on amounts to be awarded insurer under equitable subrogation (the jury did award certain amounts to St. Paul); and the third phase was another bench trial on the settlement offsets/credits to be factored into the ultimate award (with St. Paul getting some positive judgments, but small amounts after offsets/credits).  However, along the way, the lower court (1) denied that the subcontractors were jointly and liable to St. Paul (as subrogaee to Pulte) for general defense costs not related to the subcontractors’ specific scope of work; and (2) denied insurer’s request for fees in prosecuting the equitable subrogation claim based on a performance default clause in a master agreement between Pulte and the subcontractors.

            The Third District affirmed the lower court’s fee determinations.  As to the first issue, the appellate court followed two prior decisions finding that the subcontractors are only liable for fees relating to their specific scopes of work, not general attorney’s fees relating to the overall defense of the case on behalf of Pulte.  (Pulte Home Corp. v. CBR Electrics Inc., 50 Cal.App.5^th 216, 225 (2020); Carter v. Pulte Home Corp., 52 Cal.App.5^th 571, 586-587 (2020).)

            With respect to issue #2, the appellate court did note that the default clause was ambiguous so that both sides had a colorable argument on whether it encompassed general equitable subrogation fees.  However, the killer for St. Paul/Pulte was that it was ambiguous such that the ambiguity was construed against drafter Pulte—with the absence of a specific attorney’s fees clause in the default provision not clearly establishing the basis for fee entitlement. 

Costs, Deadlines, Fee Clause Interpretation: Lender Defending Against Borrower’s Attempts To Enjoin Eventual Nonjudicial Foreclosure Properly Awarded $9.235 Million In Fees

However, Costs Award Of $332,704.20 Reversed For Failure To Timely File A Costs Memorandum, Although The Appellate Court Did Indicate Lower Court Could Entertain CCP § 473 Default Motion Based On Surprise If Lender Wanted To Renew Costs Issue.

            This next case, Rincon EV Realty LLC v. CP III Rincon Towers, Inc., Case Nos. A155104/A155284 (1^st Dist., Div. 4 June 10, 2021) (unpublished), is an interesting borrower/lender case which has yo-yoed between lower and appellate courts for several years after the lender eventually nonjudicially foreclosed on Rincon Towers (a San Francisco apartment complex).  However, lender did prevail in an action initiated by borrower to forestall foreclosure, with lender then seeking substantial attorney’s fees and costs under a Loan Agreement clause.  After an initial reversal and remand, lender sought $12.2 million in fees and costs, with the lower court awarding $9,235,712.93 in fees, but with it deferring a cost ruling until a new cost memorandum was filed.  Lender did that, claiming $909,548.03 in costs, $357,603.06 in statutory fees and $551,944.97 in costs awardable under the Loan Agreement.  The lower court only awarded statutory costs, reducing the request down to $332,704.30 as far as a court order.  Borrower appealed.

            Borrower argued that lender could not obtain contractual fees because the loan was non-recourse; however, the problem here was that the Loan Agreement contractual fees clause did apply to situations where the lender had to defend against a borrower’s action, rather than commence a lender action or suit against borrower seeking a monetary judgment.  Beyond that, the contractual “proceeding” language did not preclude lender from bringing a fees motion, because a “proceeding” was more akin to an “action” that lender did not commence.  Borrower next argued that the fee award was precluded by anti-deficiency California borrower protections, but that contention was not successful because borrower brought an unmeritorious suit to which lender had to respond—an action which did not implicate a lender attempting to renege on a non-recourse loan.  (See Jones v. Union Bank of California, 127 Cal.App.4^th 542, 547-548 (2005); Passanisi v. Merit-McBride Realtors, Inc., 190 Cal.App.3d 1496, 1509 (1987).)  So, the substantial fee award was affirmed on appeal.

            That brought the appellate court to the costs award, which was a little tricker to resolve.  The 1/4 DCA agreed that the costs memorandum was untimely filed, past the 15-day notice of entry filing deadline even though there were some issues still pending in the appellate court—the best measure was to protectively file it, something lender did not do by quite a bit of time.  However, that did not end the matter.   The appellate court was sympathetic to the fact that the complex procedural context of the case might have been a surprise to the lender such that a CCP § 473 discretionary motion to allow the filing of the belated costs memorandum might be successful.  But it did not want to do that, reversing the smaller component of the costs award (the larger component were damages, and rejected because they were not pled and were not subject to damages proof below) and remanding to the lower court to decide if discretionary default relief should be granted.  So, there might be hope on the cost component for lender.

Fee Clause Interpretation: “Arising Out Of” Language In Escrow Agreement Did Encompass Fraudulent Concealment Victory By Plaintiff Buyers Against Defendant Seller And Affiliates

$412,500 Fee Award Under Escrow Fees Contract Clause Affirmed On Appeal.

            In Kim v. Lee, Case Nos. B295665/B303317 (2d Dist., Div. 7 May 26, 2021) (unpublished), plaintiff buyers won a fraudulent concealment claim against defendant seller/affiliates.  The buyers then moved for an attorney’s fees award under a broad escrow fees clause containing “arising out of” language relating to disputes between the two sides.  The lower court awarded buyers $412,500 out of a requested $591,936 in fees (disregarding a positive multiplier request).  The appellate court affirmed the fee award based on a de novo review of the contractual fee clause.  This sort of broad language has been held to cover torts in instructive earlier cases, so there was no reason to find otherwise given the similarity of the fees clause language to clauses in those previous published appellate court decisions.  (See, e.g., Lerner v. Ward, 13 Cal.App.4^th 155, 160 (1993); Xuereb v. Marcus & Millichap, Inc., 3 Cal.App.4^th 1338, 1344 (1992).)

Fee Clause Interpretation, Settlement: Post-Settlement Fee Efforts Were Not Compensable Under Specifically Crafted Fees Clause Agreed To By The Parties

About $2.2 Million In Fees, Plus Multiplier, Denied To Plaintiff In Supplemental Fee Request.

            Willis v. L.A. County Waterworks Dist. No. 40, Case No. F082766 (5^th Dist. May 26, 2021) (unpublished) is an example of where a carefully crafted fees clause in a settlement agreement may govern supplemental fee requests by a claiming party.

            This had to do with a plaintiff/class representative in the Antelope Valley Groundwater cases which, previously, had been awarded pre-settlement fees of about $3.8 million.  The parties reached a settlement agreement allowing for post-judgment fees under very specific circumstances.   Plaintiff moved for supplemental fees of $1.558-2.143 million plus a positive multiplier.  However, both the trial and appellate courts agreed the supplemental fee request should be denied because the predicate “triggers” for a supplemental fee request were not met, per the settlement agreement fees clause.  No extrinsic evidence was introduced, such that the review of the “triggers” was a de novo look-at, and the fees clause did not allow for supplemental fee recovery. 

Fee Clause Interpretation, Retainer Agreements, Section 1717: Postjudgment Order Awarding Attorney $1,232,735 In § 1717 Fees And Costs Incurred Defending Against Former Client’s Tort And Contractual Claims And Cross-Claim For Unpaid Fees Affirmed

Retainer Agreement’s Broadly-Worded Fee Provision Allowed For Recovery Of Fees For Attorney’s Defense Of All Claims By Former Client, Including Tort Claims – The Defense Of Which Were Necessary To Defeat The Contractual Claim.

            In Singh v. Molnar, Case No. B303366 (2d Dist., Div. 7 April 30, 2021) (unpublished), defendant attorney was awarded $1,232,735 in Civ. Code § 1717 fees and costs in a postjudgment order after prevailing against former client’s numerous contractual and tort claims and in his cross-claim against former client for unpaid fees.  Former client’s tort claims were based on attorney taking possession of a 10-year-old Mercedes (offered to former client as part of a settlement of another case) as an offset for fees owed by former client. 

            On appeal, former client argued that attorney improperly sought fees for attorneys who worked at his own firm defending against the tort claims, and that fees incurred in defense of the tort claims were not “on a contract” as required by § 1717.

            The 2/7 DCA affirmed. 

            Although tort and noncontract claims are generally not subject to § 1717 and its reciprocity principles, it does not prevent parties from contracting to allow for recovery of fees in tort actions.  Therefore, the question before the panel was not whether former client’s tort claims were “on the contract,” but whether the fees incurred in defending against those claims were covered by the retainer agreement.  The appellate panel found that former client’s tort claims fell within the scope of the broadly-worded fee provision because he sought a declaration of whether he owed money under the retainer agreement, or whether attorney owed money after taking the offset for the fees owed.  Agreeing with the trial court, the panel concluded that attorney’s defense of the tort claims was necessary to succeed on the breach of contract claim – and that the parties’ communications about the Mercedes/offset underscored that their disagreement was directly related to their dispute about contractual payment obligations under the retainer agreement.

Deeds Of Trust, Fee Clause Interpretation: Third District Affirms $133,176.15 Fees And Costs Award To Lender Defeating Plaintiff’s Lawsuit For Wrongful Foreclosure, Concealment And Breach Of Contract

Fee-Shifting Provisions In The Parties’ Loan Documents Entitled Prevailing Lender To Fees For Defending Foreclosure And Enforcing Plaintiff’s Debt Obligation, And Were Worded Broadly Enough To Encompass Both Contract And Tort Causes Of Action.

            In Simon v. Wells Fargo Bank, Case No. C086688 (3d Dist. April 12, 2021) (unpublished), plaintiff sued Wells Fargo Bank for breach of contract by overcharging interest, wrongful foreclosure, and concealment after it foreclosed on his shopping center following his default on loans he took out to purchase the shopping center.  After defeating plaintiff’s claims through demurrer and summary judgment, Wells Fargo successfully moved for $133,176.15 in attorney fees and costs. 

            On appeal, plaintiff argued that because he did not bring his action to enforce the deeds of trust or to unwind the foreclosure, and based on the fee-shifting provisions in the parties’ agreements which did not allow recovery of fees incurred after the foreclosure, nor for fees relating to tort claims, Wells Fargo was not entitled to fees.

            The Third District disagreed – finding the fee-shifting provisions in the parties’ master agreement and deeds of trust supported the trial court’s post-judgment order on fees.  The master agreement provided that a defaulting party would pay to Wells Fargo “all reasonable out-of-pocket expenses, including legal fees . . . , incurred by such other party by reason of the enforcement and protection of its rights under this Agreement . . . .”   The deeds of trust provided for fees at the trial and appellate levels for claims “in any way affecting any of the Subject Property or [Wells Fargo’s] ability to exercise any of its rights or remedies with respect thereto.”  Wells Fargo had successfully defended plaintiff’s wrongful foreclosure claims and its defense was “founded on the protection of its rights to repayment of interest and principal for the loans it made to [plaintiff] before he defaulted on payment.” Additionally, the panel found the fees provisions in the parties’ loan documents did not restrict fees only to contract causes of action and were broadly worded so as to encompass both contract and tort causes of action.

Fee Clause Interpretation, Landlord/Tenant: $93,913.85 Fee Award In Favor Of Residential Defendant Affirmed On Appeal

Conversion Claim Arose From The Lease, With Other Arguments Forfeited On Appeal.

            Where appellants fail to make arguments at the trial court level or in an appellant’s opening brief, they may be subject to having their challenges forfeited on appeal.  That largely happened in Ghannoum v. Sevier, Case No. B304026 (2d Dist., Div. 2 Apr. 7, 2021) (unpublished).

            Defendant tenant defensed a non-signatory residential property owner’s lawsuit based on damaging property in the premises after defendant was evicted.  The trial court awarded defendant $93,913.85 out of a requested $116,527.10 based on a lease attorney’s fees clause. 

            That result was affirmed on appeal.  Many of the arguments on appeal were dismissed because they were not raised at the trial court level or raised in appellants’ opening brief.  With respect to the gist of the claim, a conversion based on a contract can give rise to fee recovery, Mustachio v. Great Western Bank, 48 Cal.App.4^th 1145, 1151 (1996), which it did as far as triggering fee entitlement in this particular case.

Fee Clause Interpretation, Section 1717: $795,728 Fee Award To Litigant Affirmed On Appeal Based On Broad Stock Purchase Agreement Fees Clause, But $926,170 Fee Request Properly Denied As Untimely As Well As Not Allowed Under Promissory Notes Fees Clause

In The End, This Dispute Was Driven By The Fee Clauses “Four Corner” Interpretation.

            Justice Fybel, as the authoring justice in Dohr v. Lintz, Case Nos. G056144/G058796 (4^th Dist., Div. 3 Mar. 24, 2021) (unpublished), was faced with consolidated appeals where a $795,728 fee award was trying to be sustained and where a $926,170 fee request was denied as untimely and not allowable under a promissory note fees clause.  In the end, all was affirmed but he (on behalf of his panel) steered through some interesting fee analytics.

            Litigant Dohr obtained a $795,728 fee award out of a requested $2,208,512.50.  The other side appealed, principally arguing it was a tort claim not recoverable under Civil Code section 1717 and was a derivative claim which at the most capped at the $50,000 bond limitation set forth in Corporations Code section 800.  The appellate court rejected the challenges to the fee award.  Although agreeing that tort claims are not recoverable under Civil Code section 1717, the fee clause under the stock purchase agreement, had to be independently assessed, and it was broad enough to allow fee recovery.  The aggrieved party Lintz argued that she could not be held liable on a derivative claim, but she—as a shareholder of the corporation—stood in its shoes such that she became a party to the stock purchase agreement and the $50,000 limitation did not apply in the context of this case where there were other fee entitlement bases.

            With respect to the denial of the $926,170 fee request, it was untimely, there was a dismissal of the note claim effectively (such that Santisas kicked in), and the tort allegations were not tethered to the note fees clause.  All things said, there was nothing wrong in denying this fee request. 

Fee Clause Interpretation, Section 1717, Unlicensed Contractor: Section 1717 Fees Of $231,834 To Defendant Prevailing Against Statutory Claims Affirmed “Because Of” Broad Fee Provision In Parties’ Contract

Parties’ Fee Provision Encompassed Tort and Statutory Causes Of Action Commenced “Because Of” An Alleged Breach Of Contract.

            In San Francisco CDC LLC v. Webcor Construction L.P., Case Nos. A156669/A157650 (1^st Dist., Div. 1 March 19, 2001) (published), plaintiff paid defendants approximately $144 million for the construction of a hotel in San Francisco.  Eight years after defendants’ completion of the hotel and plaintiff’s final payment, plaintiff sued defendants under Bus. & Prof. Code § 7031(b) for disgorgement – alleging defendants were not properly licensed during construction and had concealed licensing violations through a series of mergers.  However, finding plaintiff’s claims had accrued at the time of final payment and were time-barred under a one-year statute of limitations (Code Civ. Proc. § 340(a)), the trial court sustained defendants’ demurrer to plaintiff’s third amended complaint without leave to amend – a result affirmed on appeal by the 1/1 DCA.

            After defeating plaintiff’s claims on demurrer, defendants successfully moved for $231,834 in Civil Code § 1717 attorney fees.  On appeal, plaintiff challenged the fees award by arguing that the trial court erred in its interpretation of the attorney fee provision in the parties’ construction agreement.  Plaintiff asserted that the fee provision excluded noncontract claims such as an action for statutory disgorgement – that fees were available only in an action for breach of contract.  The appellate panel concluded otherwise.

            The fee provision in the parties’ contract stated fees were recoverable “[i]f either party commences an action against the other to enforce any of the terms of the Contract Documents or because of the breach by either party of any of the terms of the Contract Documents . . .”  As the “because of” language in the provision did not include a limiting qualifier such as “solely” or “exclusively because of,”  the appellate panel concluded that it permitted the recovery of fees if the action was at least in part due to an alleged breach of contract – including an action brought “because of” a breach of contract without being an action for breach of contract. 

            Although plaintiff sued to assert a statutory disgorgement claim, the trial court’s conclusion that plaintiff’s action was at least in part “because of” an alleged breach of contract was fully supported by the record.  Plaintiff’s pleadings repeatedly claimed defendants breached their contractual obligations to be licensed, and plaintiff also argued before the trial court that its disgorgement claim arose out of a contractual obligation.

Arbitration, Fee Clause Interpretation, Reasonableness Of Fees, Section 1717: $1,237,501 Million Fee Award For Arbitration, Creditors Action, And Related Proceedings Affirmed On Appeal

Broad Fee Clauses Were The Bases For The Affirmed Award.

            In Currency Corp. v. Wertheim, LLC, Case No. B276506 (2d Dist., Div. 1 Mar. 2, 2021) (unpublished), Wertheim initiated legal proceedings spanning 15 years, culminating in an arbitration in which it achieved nothing (according to the DCA panel) because part of the award was found to be illegal and branched into other lawsuits and appeals.  In the end, Currency and its affiliates sought fees for the arbitration portion of the dispute and related proceedings, with the trial court granting fees of $1,237,501 against Wertheim.

            That award was affirmed on appeal.  The principal reasons were the DCA’s perception that all of the proceedings were “bundled together” and sprang from the arbitration, as well as the broad nature of some contractual fees clauses.  Given this ruling, it counsels practitioners and litigants to narrowly draft fees clauses, given that a broadly worded fees clause can give rise to fees incurred in an arbitration and related proceedings. 

            Also, be careful when you sue parties as alter egos.  Even if the case is patently untenable, Civil Code section 1717 does allow for fee-shifting in these situations—something which did occur here even though the theory was that an individual was an alter ego of an individual (an impossible construct).

            As far as reasonableness of the fees, Wertheim could not surmount the deferential abuse of discretion standard even though there was evidence in the record that the fee substantiation was incompetent in nature.

Fee Clause Interpretation, Section 1717: In San Diego Real Estate Investment Dispute, One Fee Award Of $227,734.32 Reversed While Another Fee Award Of $75,262.50 Affirmed

Whether Fee Clause Was “On The Contract” Or Fell Within The Fee Clause Language Determined The Results In This Case.

            In the attorney’s fees area in California state courts where contractual fee clauses are at issue, key issues are whether a prevailing party actually prevailed “on a contract” for fee entitlement under Civil Code section 1717 or whether a particular successful result on a contract claim fell within the governing language of the fees clause.  Chhatrala Investments, LLC v. Elajou Investment Group, L.P., Case No. D074840 (4^th Dist., Div. 1 Jan. 21, 2021) (unpublished) confronted such issues, which were key in reaching the end results.

            There, plaintiff real estate investors sued to recoup $1.79 million in funds for the sale of a San Diego commercial parcel properly known as the Waterfall Property.  They brought various contractual, tort, common count, and equitable claims against various defendants.  The defendants obtained wins through an eventual demurrer of a third amended complaint which was sustained without leave, a merits ruling affirmed on appeal.  Later, defendant Zephyr obtained $227,734.32 in contractual attorney’s fees, and remaining defendants were awarded $75,262.50 in fees as against the losing plaintiffs.

            The $75,262.50 fee award held up on appeal.  Plaintiffs’ claims were based on breach of a promissory note (based on a fees clause) and foreclosure of the underlying security; as such, the “enforce this Note” language was broad enough to provide fee entitlement.  It did not matter that plaintiff was a nonsignatory on the note because plaintiff claimed entitlement to enforce the note—seeking the benefits of the note gave rise to fee exposure.

            A different result occurred with respect to the $227,734.32 fee award obtained by Zephyr.  That one was reversed because Zephyr only prevailed on tort-based and common count claims, ones which were not “on the contract” under section 1717 (an essential component of recovery under this statute).  Zephyr’s main fallback was that it prevailed on affirmative defenses involving the contract so as to provide entitlement, but this argument was dispatched by the Mountain Air decision to the contrary [our Leading Case #22] and by the wording of the fees clause which only applied to “commenced” litigation rather than affirmative defenses. 

Fee Clause Interpretation, Section 1717: Attorney Fees Awarded To Prevailing Plaintiff On Its Tort Cause Of Action Reversed On Appeal

The Fees Clause In The Parties’ Contract Covered Only Contract Claims And Plaintiff’s Tort Claim Was Not Inextricably Intertwined With Its Dismissed Contract Claim.

            In WindAirWest v. Castle & Cooke, Case Nos. B295513 and B299043 (2d Dist., Div. 3 January 8, 2021) (unpublished), plaintiff, an operator of a private jet charter company, entered into a sublease agreement with defendant, a fixed-base operator that leases airport space and provides aircraft services to aviation companies that sublease parts of defendant’s space.  The parties’ agreement gave plaintiff access to defendant’s facilities at Van Nuys airport, including ramp and hangar space as well as an office.

            Less than a month into the sublease, one of defendant’s employees moved plaintiff’s Citation X aircraft in order to access another aircraft, but parked the Citation X on a downhill slope without putting wheel chocks in place to prevent accidental movement, and the Citation X rolled down the slope and crashed into another aircraft – causing serious damage to the Citation X.

            Plaintiff sued defendant asserting negligence and breach of contract causes of action, but dropped the breach of contract claim through its first amended complaint filed about a year-and-a-half into the litigation – leaving only the tort negligence claim for which it sought $4,235,935 in lost profits.  Defendant admitted liability – which left the only determination at trial to be whether defendant’s conduct caused plaintiff to lose profits and, if so, how much.  The jury returned a verdict in plaintiff’s favor, awarding it $2,464,560 in lost profits.  Additionally, the trial court awarded plaintiff its attorney fees as the prevailing party.

            Defendant raised several challenges on appeal, but we focus on the attorney fees award.  Plaintiff moved for fees, pursuant to Code Civ. Proc. §§ 1021, 1032, and 1033.5, based on the attorney fees provision in the parties’ agreement.  The trial court concluded the provision was broadly enough worded to encompass tort claims, but the 2/3 DCA disagreed and reversed as to the fees.  Although attorney fees are recoverable costs under §§ 1021 and 1032 if authorized by contract, the appellate panel – interpreting the parties’ fees clause under the ordinary rules of contract interpretation – found the mutual intent of the parties was clear that the prevailing party would be entitled to fees for a claim brought “to enforce any provision of this Sublease.”  Because plaintiff’s action did not enforce a provision of the sublease agreement, it was not entitled to fees under the fees provision.  Additionally, because plaintiff did not contend its tort claims were inextricably intertwined with its dismissed contract claim, its reliance on Lockton v. O’Rourke, 184 Cal.App.4th 1051 (2010) was misplaced and to no avail.

Fee Clause Interpretation: $1,487,990.30 Attorney’s Fees Award Based On Settlement Agreement Contractual Fees Clause Affirmed In Favor Of Prevailing Mobile Home Plaintiffs

Appellate Court Rejected Election Of Remedies Argument Where Plaintiffs Prevailed On Both Contract And Tort Claims With Overlapping, Yet Different, Facts.

            Mobile home park/related property management defendants had reached an earlier settlement with two mobile home residents, with the settlement agreement having a contractual fees clause for a breach limited to contract claims.  Subsequently, the mobile home residents became plaintiffs, suing the prior settling defendants for breach of the settlement agreement as well as tort claims when the residents’ mobile homes were removed from the park without their knowledge or consent.  The jury was not pleased with this conduct, awarding one resident $477,000 in compensatory damages, the other resident $468,000 in compensatory damages, and $4 million in punitive damages to each.  Later, the plaintiffs moved to recover $1,790,984 in attorney’s fees, with the lower court awarding them $1,487,990.30 after eliminating fee work on non-contract claims.

            Defendants, in Belanger v. Biggs, Case Nos. B296853/B297614 (2d Dist., Div. 3 Dec. 24, 2020) (unpublished), appealed both the merits and fees award.  Except for reversal of a fraudulent conveyance count based on lack of harm, the compensatory/punitive verdicts and fee award were affirmed in entirety.

            The defense argued that the fee award was precluded based on election of remedies, contending that plaintiffs had to choose between emotional distress/punitive damages recourse or contractually based relief.  The appellate court disagreed.  The problem here is that the tort claims, while involving some overlapping facts with the contract claims, did involve independent and different facts such that no election needed to be made because the claims were not inconsistent. 

Consumer Statutes, Fee Clause Interpretation, Settlement: $65,000 Attorney’s Fees Award And $7,987.40 Costs Award Under Lemon Law Settlement Stipulation Are Affirmed On Appeal

Lower Court Properly Harmonized Seemingly Conflicting Terms Of Settlement Stipulation.

            In Boykin v. Premier Universal, Inc., Case No. F078689 (5^th Dist. Dec. 17, 2020) (unpublished), the parties settled a lemon law case, but reserved the issue of recovery of attorney’s fees for a subsequent motion.  The problem was that the settlement stipulation had conflicting terms: (1) “fees and costs are to be resolved by motion to the Court;” and (2) “there will be no prevailing party status and no admission of liability.”  The defense seized on (2), in opposing a fees/costs motion, to boldly contend that plaintiff stipulated that there would be no prevailing party such that fee entitlement did not lie.  The lower court harmonized the two settlement provisions and determined fees/costs were justified to the tune of $65,000 in fees and $7,087.40 in costs.  The Fifth District affirmed, because the (1) settlement stipulation would be rendered meaningless, and the trial judge deciding the issue was the one presiding over the settlement colloquy such that any reasonable inferences on stipulation construction was guided by the substantial evidence rule.  (Winograd v. American Broadcasting Co., 68 Cal.App.4^th 624, 627, 632-633 (1998).)

Fee Clause Interpretation, Landlord-Tenant: Landlord Winning Malicious Prosecution Suit Against Former Tenants Was Properly Denied Contractual Fee Recovery

Narrow Breadth Of The Lease Fee Shifting Provision Sealed The Result.

            The 2/2 DCA in Vaughn v. Darwish, Case Nos. B296693/B305132 (2d Dist., Div. 2 Nov. 12, 2020) (unpublished), did express introductory exasperation about the length of the landlord/tenants’ dispute – going back to 2010, which generated 8 lawsuits, 8 appeals, and 5 writ proceedings.  (When an appellate court starts out this way, it is signaling that the time is drawing near to end the dispute.)  Landlord prevailed in a malicious prosecution action brought in response to an earlier unlawful detainer action by certain tenants, but landlord was denied contractual attorney’s fees—prompting landlord to appeal.

            The fee denial was affirmed.  The reason was that the scope of the fee clause was narrow, applying to these six categories:  recovery of moneys due under the lease; breach of lease covenants; recovery of possession for the leased premises; compelling performance of lease obligations; recovery of damages to the lease property; and enjoining acts contrary to the lease obligations.  A malicious prosecution action did not fall within the ambit of these six categories, such that the denial was correct.  “What is more, the fact that the unlawful detainer actions were the singularity from which this universe of litigation has exploded does not render all subsequent litigation subject to the attorney fees clauses in the leases when that litigation is outside the plain language of those clauses.”  (Slip Op., at p. 29.)

Fee Clause Interpretation, Deadlines: Broker Award Of $150,000 In Prevailing Contractual Fees Affirmed On Appeal

Good Cause Was Shown For Allowing Fee Motion To Be Considered After Deadline, With Broad Fees Clause Encompassing Contractual Duties Even If Statutory Duties Were Not Encompassed.

            Price v. Gullan, Case No. D075332 (4^th Dist., Div. 1 Oct. 21, 2020) (unpublished) was a very contentious case involving a defective yacht purchase dispute where the purchaser ultimately won damages/fees against yacht sellers but failed to obtain any relief against the dual broker in the transaction.  Broker then moved for costs and attorney’s fees of $440,198.45, with real storms arising on whether the fees motion was timely filed based on the judgment “trigger point” and on whether there was legitimate fee entitlement.  The lower court did award the requested routine costs and $150,000 in attorney’s fees to broker.

            Purchaser’s appeal of the fees award in favor of broker was unsuccessful.

            Although the legal discussion was somewhat convoluted, the time to appeal was triggered from the original judgment given that it only allowed costs but did adjudge the fee entitlement issue.  However, the deadline to file the fees motion can be extended for good cause—and that standard was met given a lot of confusion on the procedural history of what occurred.  The appellate court, here, did have a nice discussion on how trial courts have inherent power to grant a costs and/or fees request that does not strictly comply with statutory requirements.  With respect to the merits, the broad “arising out of or relating to this Agreement” language did encompass broker’s actions as a matter of contract, setting aside whether the conduct violated statutory actions outside the scope of the fees contract.  So, in the end, broker’s fees award was affirmed on appeal.

Fee Clause Interpretation: Attorney Raising Release As An Affirmative Defense To Client Contract/Tort Complaint Not Entitled To Prevailing Party Fees Under Terms Of Fees Clause

Mountain Air Supported Denial Of Fees To Former Attorney.

            In Thomas v. Lin, Case Nos. B291508/B292496 (2d Dist., Div. 2 Oct. 13, 2020) (unpublished), clients brought contract/tort actions arising from defendant attorney’s professional misconduct.  Clients entered into a written settlement release agreement, with one containing a fees clause encompassing “an action brought to enforce or defend the terms, conditions, and provisions of this agreement.”  Attorney obtained summary judgment based on raising the release agreement as an affirmative defense, and he then moved to recover $71,440 in attorney’s fees clients.  The lower court denied the fees motion, prompting an appeal by clients.  The 2/2 DCA affirmed.  Under Mountain Air Enterprises, LLC v. Sundowner Towers, LLC, 3 Cal.5^th 744, 753 (2017), the fees contractual language did not extend to assertion of an affirmative defense because it is not tantamount to an action.  The appellate panel said that the result might well have been different had attorney brought a cross-complaint for declaratory relief to sustain the validity of the release.

Fee Clause Interpretation: Prevailing Plaintiff Freight Forwarder Improperly Denied Contractual Attorney’s Fees Because Lower Court Erroneously Interpreted The Breadth Of Clauses In One Of Two Contracts

Confusion Arose Because There Were Two Contracts, But The Earlier One Had Terms And Conditions Applying To the Subsequent Contract; Because Fee Reasonableness Not Questioned, 4/3 DCA Remanded With Directions To Enter The Requested Fee Amount.

            Plaintiff freight forwarder had 2013 and 2015 contracts with defendant rice importer requiring reimbursement of certain third-party expenses, with the 2013 contract having a contractual fees clause and with the 2015 contract having no fees clause.  Plaintiff sued for about $36,000 in unpaid third-party expenses, and the trial court awarded $18,213.93 plus interest after a bench trial.  In a prior merits appeal, the appellate court determined that the 2015 contract incorporated the terms and conditions of the 2013 contract—a crucial determination for the end result with respect to fee entitlement.  Plaintiff moved for contractual fees of $31,713.50, but the lower court denied them based on plaintiff’s failure to break the fees down between the 2013 and 2015 contracts. 

            There was a reversal and remand of the fee denial in Western Overseas Corp. v. KRBL, LLC, Case No. G057515 (4^th Dist., Div. 3 June 30, 2020) (unpublished).

            The reason for the reversal/remand was that the lower court failed to adhere to the prior appellate ruling that the 2013 contract terms, including the fee clauses, were part and parcel of the 2015 contract, such that no apportionment was needed.  There were two clear contractual fee clauses in the 2013 agreement which allowed for fee entitlement to plaintiff.  The 4/3 panel, authored by Acting Presiding Justice Aronson, remanded with directions that the lower court award plaintiff the requested fees, rather than determine reasonableness—after all, defendant never challenged the reasonableness of the requested fees.

Fee Clause Interpretation: Successor Trustee Of Decedent LLC Member Entitled To Recover Attorney’s Fees As Prevailing Party In Litigation Against The LLC

Although Successor Trustee Was Not A Member Within the Operating Agreement’s Definition, His Status As Deceased Member’s Legal Representative Exercising Membership Rights Qualified Him For Fees Under The Operating Agreement.

            In Premiere Raspberries, LLC v. Dutra, Case No. H045594 (6^th Dist. May 14, 2020) (unpublished), the Sixth District affirmed an attorney’s fees award to the successor trustee of a limited liability company’s deceased member, with the successor trustee decedent’s rights under the LLC operating agreement.  Although determining that successor was not a “member” under the operating agreement, fee entitlement was existent because successor qualified as a legal representative exercising membership rights—a status allowing recovery of fees in the amount of $16,612.50.  In the process, the appellate court provided a good discussion of California LLC statutes, both the Beverly-Killea Limited Liability Company Act and the subsequent California Revised Uniform Limited Liability Company Act.

Fee Clause Interpretation, Prevailing Party: $290,000-Plus Fee Award To Cross-Complainant Engineering Firm Affirmed On Appeal Because Fees Clause Was Broad Enough To Encompass Quantum Meruit Claims

Adverse Party Should Have Paid Around $57,000 To Other Side, And, If So, It Would Have Been The Prevailing Party!

            Tristar Realty Group, LLC v. Koury Engineering & Testing, Inc., Case No. B294535 (2d Dist., Div. 8 May 14, 2020) (unpublished) is a result demonstrating how the prevailing party determination in a case, where a discretionary call is at issue, many times turns on the equities of the matter.

            In this one, engineering firms and a real estate developer hiring the firms got into a dispute over a “not to exceed” contract even though some of the testimony showed that the developer orally agreed and by some conduct intended to pay the engineering firms for post-Thanksgiving work of between $57,000-$59,000.  In the end, engineering firms obtained a $46,609.91 net judgment after offset of a small recovery to the developer under a quantum meruit theory. The lower court then determined that engineering firms were the prevailing parties, awarding them something north of $290,000 in attorney’s fees under a contractual fees clause.  Developer appealed.

            The 2/8 DCA affirmed.

            The pertinent fees clause encompassed any legal action or other proceeding, including a declaratory relief action, brought to enforce the contract “or because of an alleged dispute, breach, default or misrepresentation in connection with this Agreement.”  This broad language allowed for recovery on both contract and noncontract claims, such as under the quantum meruit theory.  (Maynard v. BTI Group, Inc., 216 Cal.App.4^th 984, 993 (2013).). The appellate court also found helpful the discussion on the “in connection with” language contained in Mountain Air Enterprises, LLC v. Sundowner Towers, LLC, 3 Cal.5^th 744, 758-760 (2017).  Engineering firms were the prevailing parties because they defeated developer’s $477,000 damages claims, even though developer did defeat firms’ $290,000 contract claims.  To developer’s rhetorical argument that it should just have paid the $290,000 “extortionistic” claim given that the eventual fee award was higher, the 2/8 DCA panel responded that if the developer had paid for the $57,000 in post-Thanksgiving work, it would have been the prevailing party. 

Fee Clause Interpretation, Prevailing Party, Section 1717: Defendant Successfully Challenging Plaintiff’s Trial Court Fee Request, Where Plaintiff Declared Prevailing Party Under Contract, Was Not Entitled To Attorney’s Fees As The Prevailing Party

Defendant’s Limited Appellate Court Win Before Did Not Mean He Prevailed—There Can Only Be One!

            Defendant lost an arbitration to plaintiffs who were declared prevailing parties under a contract by the arbitrator.  Plaintiffs moved for recovery of contractual attorney’s fees under Civil Code section 1717, a request granted by the trial court but then reversed on defendant’s appeal based on an insufficient fee submission.  Defendant then moved for attorney’s fees based on the appellate win, a request denied by the trial court after finding he was not the prevailing party.

            The 1/1 DCA affirmed the fee denial in Achterkirchen v. Montiel, Case No. A153560 (1^st Dist., Div. 1 Mar. 24, 2020) (unpublished).

            The problem with defendant’s approach was that he did not prevail overall under the contract, as Civil Code section 1717 requires.  The arbitrator found that plaintiffs prevailed, with defendant simply winning a skirmish on a collateral fee order along the way.  Because there can only be one prevailing party on the contract (Carriere v. Greene, 39 Cal.App.5^th 270, 276-277 (2019) [discussed in our August 28, 2019 post]), defendant was not the one who prevailed.  He argued that the contractual fees clause cut the other way, but the Court of Appeal panel found that “proceeding” encompassed the entire controversy, not just one appeal in isolation.

Allocation, Fee Clause Interpretation, Reasonableness Of Fees: Reducing Requested $1.36 Million Fee Award, By 25% To $943,028, Was No Abuse Of Discretion Based On $1.2 Million-Plus Recovery And Rejection Of Low Ball Defense Settlement Offer

Tort Claim Defense Fees On An Unsuccessful Cross-Complaint Were Interrelated, Thus No Allocation Required; Prevailing Party Clause In Lease Applied So As To Allow Fee Recovery In Broker’s Favor.

            Water Court, LLC v. Adams Wine Group, LLC, Case No. B290799 (2d Dist., Div. 6 Feb. 25, 2020) (lead appeal; unpublished) is an example of where significant attorney’s fees will be awarded and trial judge reductions affirmed where the defendant, a would-be tenant, breached a $1 million “build to suit” office lease and accompanying guaranty.  Landlord eventually was awarded $1,208,032.42 after a jury verdict which was reduced a little over $500,000 through a new trial remittitur.  Landlord was then awarded $943,028 in attorney’s fees under a lease fees clause, out of a requested $1,359,122.50—a 25% reduction (and a little more than the defense expert conceding that $872,441.31 was a reasonable fee award).  The broker was awarded $360,520.50 in fees under a contractual paragraph in the lease. 

          The 2/6 DCA affirmed the fee awards after a small compensatory damage modification for “twice counted” demolition costs.

            Landlord’s $943,028 fee award was proper given (1) a 25% reduction by the trial judge; (2) the guarantor making a low-ball offer to settle for $100,000 six weeks before trial, forcing Landlord to incur another $552,714 in fees/costs, and (3) the trial judge’s reduction such that the hourly rates claimed were “evened out” by the 25% haircut.   The fees incurred by Landlord to successfully fight the defense counter-claims did not have to be apportioned, because they related to common core facts and related legal theories involved in the overall litigation.

            Finally, the Brokers were entitled to $360,520.50 because the lease fees clause included brokers among the “prevailing party” definition, creating a tripartite contract between the lessor, lessee, and broker. 

Fee Clause Interpretation, Section 1717: Plaintiff Nonparty Manager To An LLC Operating Agreement Not Subject To Attorney’s Fees When Losing Tort Claims Against An LLC Member

Even though Plaintiff Was A Suspended Entity, Retroactive Revival Preserved Ability To Oppose Fees Motion, Which Could Still Not Be Granted If No Fee Entitlement.

           In 9450 Topanga Properties, LLC v. Alpine Consultants, LLC, Case No. B293178 (2d Dist., Div. 4 Dec. 23, 2019) (unpublished), plaintiff manager, not a party to an LLC Operating Agreement with a fees clause applicable between the LLC and members, lost fraud claims brought against a defendant member, with managers having a separate management agreement defining rights and obligations as to the LLC.  Defendant member moved for fees under the Operating Agreement fees clause, with plaintiff opposing even though it was a suspended entity.  Plaintiff later revived its status.  The lower court denied fees to defendant, prompting an appeal.

            The 2/4 DCA affirmed.  With respect to the suspension issue, the retroactive revival validated the prior fee opposition.  (Moofly Productions, LLC v. Favila, 24 Cal.App.5^th 993, 1000 (2018).)  However, given there was no fee entitlement basis, the lower court was correct to deny a meritless motion notwithstanding plaintiff’s status.  Losing plaintiff manager was not a party to the Operating Agreement, so there was no fee entitlement as a matter of substantive law.  Beyond that, the action was grounded in tort, not contractually based, an independent reason justifying denial of fees. 

Fee Clause Interpretation: Settlement Agreement Fee Clause Language Did Not Apply To Postjudgment Court Order Violation Activities

Beyond That, Judgment Did Not Have A Fees Award In It.

            In Salcido v. Platinum Home Mort. Corp., Case No. B289010 (2d Dist., Div. 2 Dec. 20, 2019) (unpublished), the trial judge awarded $137,700 in attorney’s fees to a party to a settlement agreement which encompassed “enforcement” or “interpretation” of the agreement, which had been reduced to a judgment which did not contain fees award language.  The 2/2 DCA reversed, finding that the fees involved activities to enforce various court postjudgment enforcement orders, which did not fall within the “enforce/interpret” language of the fees clause.  Furthermore, the settlement agreement had been merged into and extinguished by the judgment, which fatally did not contain a fees award component.

            “Respondents do not cite any case supporting the conclusion that an agreement authorizing attorney fees for a prevailing party in an action to interpret or enforce a settlement agreement applies to an action to enforce court collection orders entered pursuant to a subsequent judgment.”

Fee Clause Interpretation, Indemnity: Prevailing Cross-Complainant Entitled To $87,024.91 In Attorney’s Fees And Costs From Cross-Defendant In Customer Suit Defense Costs

Terms Of The Indemnity Did For Recovery Of Fees And Costs From Cross-Defendant.

            The 2/8 DCA, in ZIM American Integrated Shipping Services, Co. v. GES Logistics, Inc., Case No. B292259 (2d Dist., Div. 8 Dec. 11, 2019) (unpublished), had no trouble interpreting the contractual interpretation reached by a trial judge below.  What happened is that ZIM, which was contracted with by GES to provide shipping services at specified rates, was directed by GES to place a hold on one of GES’s customer’s cargo.  Customer sued ZIM, who in turned cross-claimed against GES based on contractual indemnity language.  The lower court awarded ZIM its legal fees incurred in the customer lawsuit based on ZIM’s cross-complaint against GES.  The fees/costs award totaled $87,024.91.  The appellate court affirmed based on clear contractual language requiring indemnification of fees/expenses incurred to ZIM “as a consequence of ZIM acting in accordance with GES’s instructions and information, or the inaccuracy of insufficiency thereof, ….”

Fee Clause Interpretation, Section 1717: Nonsignatory Prevailing Parties, Alleged To Be Alter Egos, Were Entitled To Attorney’s Fees Under Contractual Fees Clause When They Beat The Alter Ego Allegations

Reynolds Was Controlling, Not Blickman Turkus.

            What happened in Kaddu, Inc. v. Gauze, Case No. H045090 (6^th Dist. Nov. 27, 2019) (unpublished) is that a cross-complainant filed a contractually-based cross-complaint against nonsignatory cross-defendants where they were alleged to be alter egos of the primary cross-defendant.  Cross-complainant sought attorney’s fees, in addition to damages, based on the theory that the nonsignatory cross-defendants were in actuality the “Buyers” under a business purchase agreement given the alter ego theory predicate.  (Of course, the business purchase agreement had a contractual “prevailing party” fees clause.)   Nonsignatory cross-defendants successfully moved for summary judgment, but the lower court denied their request for attorney’s fees because they were not defined “buyers” under the business purchase agreement, relying on Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, 162 Cal.App.4^th 858, (2008) in reaching its conclusion.

            The Sixth District reversed.  The reason why Blickman Turkus was distinguishable had to do with cross-complainant’s alter ego allegations, which under Reynolds Metals Co. v. Alperson, 25 Cal.3d 124, 129 (1979) [our Leading Case No. 5] would have exposed nonsignatory cross-defendants to exposure had the alter ego allegations had been proven.  They were not, such that Reynolds controlled over Blickman Turkus. 

Fee Clause Interpretation, Section 1717: Collections Fees/Costs Provision In A Preprinted Form Which Was Incorporated In The Parties’ Bargain Provided Fee Entitlement

Fees Are Costs, And Do Not Have To Be Pled/Proven Unless In A Third Party Tort or Brandt Situation.

            Ya know, fee entitlement under a contractual fees clause can be based on very simple language set forth in a preprinted form.  In Ozuna Electric Co., Inc. v. Integrated Process Control Engineering, Inc., Case No. G056765 (4^th Dist., Div. 3 Nov. 26, 2019) (unpublished), the language was as simple as “All [c]ollection costs and [a]ttorney fees shall be added to the unpaid balance” in an exhibit which was incorporated into the overall bargain between the parties through an integration clause.  A prevailing party in a contract action was awarded fees under this contractual provision, which triggered an appeal by the opposing party.  To no avail—the clause was clear in granting fee entitlement and was integrated into the overall bargain between the parties.  With respect to the argument that fees had to be pled and proven as damages at trial, that is simply not the case because attorney’s fees are costs which do not have to go through this process, except in inapplicable third-party tort or Brandt situations.  Presiding Justice O’Leary authored the 3-0 panel opinion. 

Allocation, Fee Clause Interpretation, Lodestar, Prevailing Party, Reasonableness Of Fees, Section 1717, Settlement: Reasonable Discretion Exercised In Awarding Defendant Only 20% Of Requested $177,712 In Fees

The Legal Principles Of Civil Code Section 1717 and Santisas Governed.

            Both parties appealed the fee results in Rusnak/South Bay v. Glukel Group, Case No. B286513 (2^nd Dist., Div. 3 Sept. 27, 2019) involving a dispute between landlord and tenant – with tenant plaintiff advancing contract and tort claims against landlord. 

            Tenant dismissed its lawsuit during the discovery phase, before depositions took place, and Landlord moved for an award of $177,712 in attorney fees under the lease’s attorney fee provision which entitled the prevailing party to fees.  Although the trial court granted the fee motion, it awarded Landlord with only 20% of the requested fees – apportioning between the contract and tort claims pursuant to Civ. Code section 1717(b)(2), and reducing for excessive and unreasonable fees.  

            On appeal, Landlord argued that it was entitled to all of the fees pursuant to the lease contract, and Tenant argued that Landlord was not the “prevailing party” on the tort causes of action.

            The 2/3 DCA affirmed.  The apportionment and 80% reduction were proper pursuant to the legal principles of Santisas v. Goodin (1998) 17 Cal.4^th 599 [our Leading Case No. 6] and Civ. Code section 1717(b)(2).  First, as to the contract claims, section 1717(b)(2) bars recovery of the fees incurred to defend plaintiff’s contract claims where an action has been voluntarily dismissed as it was here – with Santisas defining the extent of such preclusion to include cases involving a contract that on its own terms authorizes recovery of those fees. 

            As to Tenant’s argument that Landlord was not the prevailing party on the tort causes of action, the 2/3 DCA found the argument meritless – citing the holding in Santisas that the “prevailing party” of tort claims resolved by  voluntary dismissal is governed by the clear and unambiguous language of the contract for purposes of awarding attorney fees.  Here, the relevant fee provision defined “prevailing party” to include “without limitation” a party “who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party . . . of its claims.”  Tenant abandoned its noncontract claims, making Landlord the prevailing party under the unambiguous terms of the parties’ contract. 

Fee Clause Interpretation, Reasonableness Of Fees: Plaintiff Subhauler Winning Net Judgment Of $19,113.84 Was Properly Awarded Contractual Fees Of $100,415

Contractual Fees Do Not Have To Be Proportional And Unsuccessful Efforts Can Be Awarded.

            In Cheema v. L.S. Trucking, Inc., Case Nos. A150234/A151044 (1^st Dist., Div. 4 Sept. 17, 2019) (published), plaintiff, a subhauler for defendant trucking company, won affirmative recovery in the form of a net judgment of $19,113.84.  There was a broad contractual fees clause, which led the trial judge to award plaintiff the fully requested $100,415 in attorney’s fees.

            Both sides appealed, with plaintiff winning some relief on prejudgment interest and penalty denials.  However, the fee award was sustained.  Contractual fees do not have to be proportional to the damages award (Cruz v. Ayromloo, 155 Cal.App.4^th 1270, 1276 (2007)), and trial judges have broad discretion to not reduce fee requests for unsuccessful, albeit nonfrivolous, motions along the way. 

Fee Clause Interpretation: Plaintiff Obtaining Breach Of Contract Damages In Court Lawsuit Was Not Entitled To Fee Recovery, Because Fees Clause Only Applied To Arbitration Results

Contractual Interpretation Of Fees Clause So Confirmed.

           A plaintiff sued and obtained contractual breach damages of $317,512, but really wanted to obtain prevailing party fees under a contractual fees clause.  The trial court did not bite, and the same too for the appellate court in SPAP Company, LLC v. Clinical Products, LLC, Case No. B282405 (2d Dist., Div. 3 Aug. 29, 2019) (unpublished).

            The problem was that the fees clause was contained in a section entitled ARBITRATION, which did not expand its scope outside of that context (unless possibly court-related proceeding related to the arbitration itself).  That required affirmance of the fee denial order, because the relief was obtained in court rather than arbitration proceedings.

Fee Clause Interpretation, Landlord/Tenant: Guarantor Limitation Of Liability Provision Did Not Limit Fee Recovery

Guaranty Limitation Applied Only To Damages, Not To Attorney’s Fees Which Are Costs Instead.

            In Valencia Gateway Retail IV, LLC v. Woltman, Case No. B288726 (2d Dist., Div. 5 Aug. 20, 2019) (unpublished), two defendant guarantors of a breached lease argued that a guaranty liability limitation—“equal to six months’ charges due under the lease” after tenant successfully performed for three years—prevented an award of attorney’s fees against them as non-prevailing parties despite a fees clause in the guaranty stating “[i]f Landlord is required to enforce Guarantor’s obligations by legal proceedings, Guarantor shall pay to Landlord all costs incurred including, without limitation, reasonable attorney’s fees.”  The trial court did not buy the argument, awarding prevailing landlord $30,365.000 in fees under the guaranty fees clause.

            The 2/5 DCA affirmed the fee recovery.  It, too, did not believe that the guaranty limitation applied to fees because the guaranty fees clause was not so limiting, and the limitation only applied to damages rather than costs such as attorney’s fees.

Deeds Of Trust, Fee Clause Interpretation: Narrow Nature Of Lender Fee Clauses In Promissory Note And Deed Of Trust Did Not Allow Fee Recovery To Lender Based On Wrongful Foreclosure Tort Claims

Broader Fee Clauses Might Have Resulted In A Different Conclusion!

            Byun v. Loma Linda University, Case No. E069549 (4th Dist., Div. 2 July 25, 2019) (unpublished), although unpublished, does offer some drafting tips to lenders where wrongful foreclosure cases are brought by borrowers, who prevail and then want to recoup some attorney’s fees. 

            Borrower lost a wrongful foreclosure, declaratory relief, cancellation of instruments, and quiet title action against lender after losing real property in a foreclosure sale.  The defense prevailed at a bench trial, but the trial court denied the lender side’s request for attorney’s fees of $33,917.76 based on fees clauses under the promissory note and deed of trust.  The note provided that the lender was entitled to recovery attorney fees and legal expenses incurred in connection with “hiring or paying someone else to help collect this Note if Borrower does not pay.”  The deed of trust fees clause said this: “If Lender institutes any suit or action to enforce any of the terms of this Deed of Trust, Lender shall be entitled to recover such sum as the court may adjudge reasonable as attorneys’ fees at trial and upon any appeal.”

            The 4/2 DCA affirmed.  Analytically, it found that Civil Code section 1717 did not apply because it only dealt with contract actions, but that still left a consideration of whether the two fees clauses covered the non-contractual claims at issue.  The appellate court concluded they did not, based on their narrow breadth.  Lender conceded the note clause was not part of collecting on the note, but really only reached tort claims asserted by losing plaintiff.  With respect to the deed of trust, the problem was that lender did not institute an action so that the fees clause was not triggered.  However, the Court of Appeal, in distinguishing a different result in Jones v. Union Bank of California, 127 Cal.App.4^th 542, 544 (2005), did suggest the result might have been very different had the fees clauses extended to “reasonable attorney fees, and all expenses in connection with the protection or realization of the collateral securing the Note” or “proceedings involving Guarantors that in any way affect the exercise by Lender of its rights and remedies hereunder.”  Even unpublished decisions provide valuable drafting tips to future parties and litigants with respect to gaining fee recovery—in a word, use broad language!

Arbitration, Fee Clause Interpretation, Indemnity: Narrow Fee Clause, Allowing Recovery In Arbitration Only, Did Not Confer Fee Recovery For Fees Relating To Litigation

Indemnity Clause Gave No Basis For Fee Recovery, Because It Was Unilateral In Favor Of Unsuccessful Party, Not Allowing For Fee Entitlement--$628,587.50 In Fees Went Away!

            In Club Acacia Community Assn. v. Professional Community Management of California, Inc., Case No. G056313 (4^th Dist., Div. 3 July 11, 2019) (unpublished), a long-time dispute between an HOA, property manager, and contractor over the problematic installation of a fire alarm system at a condominium building resulted in property manager being found liable to HOA for $88,500 after allocation of comparative negligence against HOA and contractor in litigation, but no one pursuing claims in arbitration.  There were two potential fee entitlement provisions: (1) an arbitration clause, but fees to the prevailing party only applied to an arbitration; and (2) an indemnification clause between HOA and property manager, in favor of property manager, for claims arising out of performance of the HOA-property manager contract.  Eventually, the lower court awarded HOA fees in the amount of $628,587.50 against property manager based on the arbitration clause.  Property manager appealed the fee award, to its credit.

            First of all, the indemnity clause did not allow for fee entitlement.  An indemnity clause is not made mutual by operation of Civil Code section 1717, such that HOA could not get fees, because it only favored property manager.  (Building Maintenance Service Co. v. AIL Systems, Inc., 55 Cal.App.4^th 1014, 1029 (1997).)

            Most importantly, the arbitration clause only applied to arbitration activities, such that the litigation attorney’s fees award went POOF!  Respondent HOA offered numerous theories—conduct of the parties and drafting party adverse ambiguities (contra proferentem) arguments—but they were to no avail, based on the unambiguous language that only arbitration fees were to be awarded.  So, in the end, $628,587.50 in adverse fees went away on appeal, in a 3-0 unpublished decision authored by Justice Moore.

Fee Clause Interpretation: “Collection Costs” Fees Clause Of A Narrow Nature Was Interpreted Against Drafting Party And Did Not Include Fees For Defending Counterclaims

Fee Award Remanded For A Restudy, But A 50% Reduction For Overlitigation By Prevailing Party Likely Stands On Remand.

           To take us back to law school days, contra proferentem is Latin for interpreting a contract against the drafter.  That principle was at play in contractual interpretation of the scope of a lender fees clause in Cavalry SPV I, LLC v. Watkins, Case No. D072299 (4^th Dist., Di. 1 July 1, 2019) (published).

            Lender prevailed in a debt collection dispute, including turning back tort and other claims based on borrower’s cross-complaint (counterclaims).   The operative fees clause said this: “Collection Costs.  To the extent permitted by law you are liable to us for our legal costs if we refer collection of your account to a lawyer who is not our salaried employee.  These costs may include reasonable attorney’s fees.  They may also include costs and expenses of any legal action.”  Based on this clause, the lower court awarded lender its costs of prevailing on the debt and in defensing plaintiff’s cross-claims.  The fee award was $134,604.86, with reductions for overlitigation by the lender.

            The 4/1 DCA reversed and remanded based on the conclusion that fees clause did not allow for recovery of work relating to the defense of counterclaims.  The appellate court agreed that the provision was not broad enough to encompass this work, because the counterclaims were much more than a legal action “to collect on the account.”  Given the clause appeared in a one-sided adhesion contract, the terms had to be construed against lender.  However, because the matter had to be remanded anyway, the appellate court did not adopt the 50% reduction for overlitigation per se, although indicating that it could be considered again upon the “re-do.”

Fee Clause Interpretation, Prevailing Party, Section 998, Section 1717: In A 2-1 Split Decision, 2/5 DCA Affirms $28,000 Contractual Fee Award To Prevailing Tenants Based On An Entered CCP § 998 Judgment And On Residential Lease Fee Provisions

Majority And Dissenting Justice Disagreed On The Meaning Of A $500 Fee Cap Provision When Another Provision Discussed Additional Fees Being Within Play.

            We know from 511 S. Park View, Inc. v. Tsantis, 240 Cal.App.4^th 44, 48 (2015) [discussed in our October 10, 2015 post] that courts will honor a contractual “cap” of fees set forth in the language of the fees clause itself.  The next case involves a residential lease with both a “capped” provision and another provision talking about additional fees being available in some situations.  The interpretation of those provisions actually produced a split decision by the 2/5 DCA in Beloit & Associates, Inc. v. Michael, Case No. B286460 (2d Dist., Div. 5 June 21, 2019) (unpublished).

            Plaintiff landlord and defendants/cross-complainant tenants got into a residential lease dispute, resulting in both a complaint and a cross-complaint (with the main dispute apparently centering on a security deposit).  The lease had a primary fees clause with a $500 cap and another fees clause allowing additional fees to landlord if a dispute could not be worked out under certain specified situations.  Ultimately, landlord accepted tenants’ CCP § 998 offer by which landlord obtained nothing under its complaint and tenants obtained $500 on the cross-complaint, with landlord apparently believing that there was a costs waiver based on pre-offer settlement exchanges even though there was no costs waiver in the 998 offer.  Judgment was entered on the 998 offer, and tenants moved for Civil Code section 1717 fees under the fees provisions to the tune of a requested $31,797.50.  The lower court awarded $28,000, provoking landlord’s appeal.

            The majority, in an unpublished opinion authored by Justice Moor, affirmed.  With respect to landlord’s waiver of cost argument, this was rejected because the lack of costs/fees language in the 998 offer allowed tenants to bring a subsequent fee motion.  (Timed Out LLC v. 13359 Corp., 21 Cal.App.5^th 933,944 (2018).)  The pre-offer settlement exchange and subjective belief by landlords’ attorney were irrelevant.  Landlord’s argument that no fees were allowable because there was a voluntary dismissal was plain wrong, because a judgment had been entered in tenants’ favor such that they prevailed.  That brought the majority to landlord’s argument that only $500 could be awarded in fees, but the majority found that the other provision allowing additional fees superseded the cap and was applicable under section 1717 to tenants even though unilaterally worded in landlord’s favor.

            Acting Presiding Justice Baker, in dissent, saw things differently on the “cap” issue.  He believed that it was in play, because the additional fees provision had limiting language which invoked the cap—due to the language “Refer to Lease for limitations” in the second fees clause.  He would have modified the fee award downward from $28,000 to $500.  Here is his ending observation:  “I cannot justify disregarding a glaring error in interpreting the lease documents, one that results in a mistaken award of tens of thousands of dollars in attorney fees, by an overly strict Marquess of Queensbury-type application of appellate brief formatting rules or abstract theorizing about possible concessions made below. I therefore respectfully dissent.”

            BLOG PRACTICE POINTERS—Two practice pointers emerge based on the reasoning from both the majority and dissenting justices.  First, if you want to waive fees and costs, make sure that waiver is clearly set forth in the section 998 offer; do not rely on pre-offer negotiations.  Second, if you want to enforce a fee “cap” in a contract, make sure that the “cap” language is clear and unambiguous in nature, reiterated if there are other addendum provisions relating to fee recovery to avoid a result like the one in this decision.

            BLOG HISTORY UNDERVIEW—This brings us to discuss John Douglas, the 9^th Marquess of Queensberry, the person alluded to by Justice Baker in his dissent.  This Marquess of Queensberry, who was supposedly a beautiful sports boxer himself, helped implement a strict code of conduct/rules for the sport of box (including the use of gloves and rules such as not hitting below the belt).  But there is more.  This M/Q got into a real battle with noted Irish poet and playwright Oscar Wilde.  Based on an apparent homosexual relationship between Wilde and Q/M’s son Alfred, Q/M was angered by things and delivered a calling card “For Oscar Wilde, posing as Somdomite [sic]” at Wilde’s club.  Wilde sued for criminal libel, which led to Q/M’s arrest.  Wilde dropped his libel case because a defense to his claim was that Wilde had sex with other men (with Q/M indicating he intended to present such testimony in his defense).  Q/M then won substantial defense expenses against Wilde based on a counterclaim.  This left Wilde bankrupt, also resulting in his conviction for gross indecency and in two years of hard labor while Wilde was confined to jail.  Wilde then went into exile in France.  Q/M, at the age of 56, died on January 31, 1900.  Months later, Wilde died at the Hotel d’Alsace in Paris, at the age of 46.  Wilde’s last words right before his death were reputed to be something to the effect, “The wallpaper [in the hotel] is terrible—one of us will have to go!”

Fee Clause Interpretation, Section 1717: Fraud-Based Claim Upon Narrow Unilateral Fees Clause Was Not Broad Enough To Allow Fees To Prevailing Fraud Plaintiffs

However, Appellate Court Reversal Of Guaranty Rescission Denial Did Trigger Fee Recovery Under Broad Bilateral Fees Clause.

            If readers follow us over the years (or if you are new to us, welcome), the actual wording of a contractual attorney’s fees clause can be critical in terms of whether it allows fee entitlement.  The disparate language in fees clauses under a lease and guaranty actually led to different results in Orozco v. WPV San Jose, LLC, Case No. H044014 (6^th Dist. June 17, 2019) (published).

            Orozco involved a situation where a plaintiff lessee successfully sued for fraud in the negotiation of a lease because lessor’s agent failed to disclose that there was a lease with a competing-type of food tenant after indicating that there were no other prospects on board.  (NOTE TO TENANTS:  Ask landlord for an exclusivity clause in order to truly protect yourselves.)  However, that was not true, there was a competing lease in the pipeline.  Plaintiff tenant opened with good revenue fanfare, but that died after the competing tenant came aboard.  Plaintiff and an affiliate sued for fraud in the lease negotiation and rescission, with lost profits being awarded on the fraud claims but with rescission being denied (with the lease guarantor seeking rescission of the guaranty).  The lower court denied attorney’s fees to the suing tenant and guarantor.

            The Sixth District affirmed the denial of fees to plaintiffs based on its fraud victory.  The problem was that the predicate lease fees clause was narrow and unilateral to Landlord, limited to disputes “arising from the provisions of this Lease or any default hereunder.”   Even under Civil Code section 1717, the narrow language of the lease fees clause did not encompass a tort dispute which was not one grounded “on the contract.”  However, the appellate court reversed the lower court’s denial of rescission of the guaranty.  The guaranty lease clause was much different.  The guaranty included a provision entitling a prevailing party in “an action against the other arising out of or in connection with this Guaranty” the right to “recover from the other attorneys’ fees and costs, including collection costs incurred.” This expansive language, which applied to any prevailing party (unlike the unilateral language of the lease’s attorney’s fee provision) was sufficient to encompass Orozco’s fraud action and rescission remedy. (Lerner v. Ward, 13 Cal.App.4th 155, 159– 161 (1993) [clause allowing fees in any action or proceeding arising out of the agreement includes a fraud action arising out of the agreement].) So, the matter was remanded to allow the guarantor to obtain some fee recovery, out of a denied initial fee request of $700,000. 

Appeal Sanctions, Fee Clause Interpretation, Section 1717: Absence Of Appropriate Fees Clause Doomed Prevailing Defendants’ Request For $621,328.34 In Attorney’s Fees

However, Plaintiffs/Appellants And Their Appellate Counsel Sanctioned $44,654.64 For Frivolous Appeal.

            In J.B.B. Investment Partners Ltd. v. Fair, Case Nos. A152877/A153698 (1^st Dist., Div. 2 June 4, 2019) (unpublished), plaintiffs prevailed on a breach of contract count through a summary adjudication motion based on defendants’ breach of a settlement agreement and a lot of litigation activity to not pay under the settlement.  Plaintiffs earlier had SLAPPed defendants’ cross-complaint, and were awarded $12, 609 for that successful effort.  Defendants moved for fees of $621,328.34 under Civil Code section 1717, but the lower court denied the request, awarding $4,918 for additional fees relating to the SLAPP proceedings.  Plaintiffs appealed the merits determination, while defendants appealed the fee “denial.”

            Both appeals failed to garner any changes, except for a significant one:  plaintiffs and their counsel were sanctioned $44,654.64 for bringing a frivolous appeal—with the amount going to compensate defendants for responding to the appeal.  (We have seen a recent trend by appellate courts to sanction increasingly for frivolous appeals.)

            With respect to the fee denial, section 1717 does not create an independent right to fees, since one must look for fee entitlement through an actual contractual fees clause or an enabling statute.  Here, the settlement agreement had no fees clause, and the LLC operating agreement’s fees clause only applied to arbitration efforts rather than the litigation activities which were at issue in this one.  Fee denial affirmed.